eBook
Manufacturers’ 5 Biggest Forecasting Challenges
THE STAKES The importance of business agility What’s keeping you up at night? Maybe you’re wondering if the revised standard cost and asset utilization assumptions at the Ohio assembly plant will be sufficient to hit the profitability targets you set. Or perhaps you’re worried about getting accurate demand forecasts early enough from sales to ship parts by sea and reduce freight costs. To thrive in an increasingly competitive and global marketplace, modern manufacturing companies have to be rigorous in their planning. But it’s just as important to be agile, so you can allocate resources strategically. Yet many manufacturers today are struggling to keep up. After months of preparation and vetting, annual plans immediately become obsolete.
Running what-if scenarios to answer ad hoc questions on product profitability or reject rates is costly and time-consuming. In fact, nearly 80% of CFOs admit they’ve delayed major business decisions because stakeholders lacked timely access to data. Read this eBook to learn how manufacturing organizations like yours have replaced static, annual plans with agile forecasts, and run holistic, dynamic what-if scenarios that help them allocate capital where it’s needed. Discover how to sharpen insight, reduce risk, and operate with agility.
Adaptive Insights eBook Manufacturers’ 5 Biggest Forecasting Challenges
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Challenge 1 Being efficient enough to provide a rolling forecast
Say you’d like to adjust labor and direct overhead assumptions in your standard cost models to reflect your Q1 actuals. Now come new unit volume forecasts. What will all this mean for your Q4 cash position? It should be easy enough, but this one “small” change triggers a waterfall of updates consuming hours, days, or even weeks—particularly if you do your planning on spreadsheets. Excel works great for individual back-of-the-envelope analysis, but an organization relying on a web of V-lookups glued together with copy
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and paste makes for a forecasting process that is time-consuming and error-prone.
saved me a heap of work
Finance professionals say they take an average of 77 days to complete an annual budget and 20 more to perform a forecast, according to the Association of Finance Professionals. With a cycle that slow, it’s difficult to provide a rolling view of the organization or make time for strategic analysis.
compared to putting
Best practice: Implement a cadence and system that allows you to
together a spreadsheet
ingest actuals on an automated basis. Then easily adjust drivers in your
“Adaptive Insights has
model. I also benefit from using the notes function to add important details to the budget. I am constantly looking at the
model so you can provide an always-on rolling forecast.
77 days working up annual budget
application to review the budget, run reports, and get information quickly at our fingertips.” —Financial Controller, Crittall
20 days preparing forecast
Day 98 plan is obsolete
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Challenge 2 Keeping everyone on the same page
Are we all aligned on the numbers? A solid plan requires a comprehensive model to ensure that everyone is on the same page and has access to the latest data. And with data coming from multiple sources—production, inventory, and expenses from ERP; personnel data from HR; and supply chain, safety incident, and QA data from other operational systems—relying on a disconnected tool like Excel becomes problematic. You’ll end up with decisions that are delayed or, worse yet, based on stale data.
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Best practice: Toss out the spreadsheet and use a specialized tool that incorporates the latest data to drive your standard cost or inventory models. Establish a single source of truth for the entire organization—so everyone’s on the same page.
“With 25 participants in the budget process, the level of access to information, transparency, and collaboration has increased substantially. It builds confidence between stakeholders and the finance team.” Finance Manager, Boston Scientific
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Challenge 3 Modeling multiple what-if scenarios
Driver-based models that span the full gamut of operational metrics such as asset utilization, cycle time, and direct and indirect costs enable organizations to run the holistic what-if scenarios necessary to support critical capital allocation decisions. Models ought to be able to answer questions like, What’s the cash impact in Q4 due to a longer production cycle? What happens if we increase or decrease plant downtime?
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Businesses today need to be agile. Finance teams need the flexibility to be able to spin off multiple scenarios at a moment’s notice to explore the implications of possible strategic decisions and settle on a course of action. Best practice: With the right tool, this kind of complex planning can be fast and easy—and far more flexible than traditional spreadsheet-based
“Adaptive Insights
planning allows. Easily change assumptions and quickly see results. Then take all the time you need to analyze the implications.
allows us to be a lot more accurate in our planning because it is so much easier to update information as needed. We now have the flexibility to immediately react to keep information relevant and up-to-date.” —Manager of FP&A, Quidel
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Challenge 4 Getting business partners to own the plan
When plans are locked up on an FP&A analyst’s hard drive, plant managers have difficulty accessing the KPIs they’re responsible for. This creates a lack of ownership and accountability for the results—it becomes “finance’s number” instead of their own. Critical KPI data—loss rates on the plant floor, number of customer complaints, and more—needs to be in the hands of decision-makers.
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Getting answers to ad hoc questions shouldn’t be a multiday, one-off exercise for an FP&A analyst. No surprise, then, that nearly three-quarters of CFOs identified collaboration as a top initiative. Best practice: Empower stakeholders with real-time, self-service access to the data they need, and the plan will become theirs. A dashboard allows plant managers outside finance to easily review KPIs and see the
“The self-service
impact of their decisions without having to put requests into finance.
aspect of reporting is empowering for our people because they are no longer confined to a canned set of reports. They don’t have to make a request to someone else to build a new report; they can simply create their own. That is very empowering. It gives them the ability to explore data to find the information they need.” —Senior Financial Analyst, Porex
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Challenge 5 Marrying the top-down with the bottom-up
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Guidance from executives and board members typically takes a top-down perspective—production targets, growth rates, margin goals, and more. But building an operational plan that you can actually execute against requires detailed ground-up assumptions.
So when it comes to building a model, the FP&A team is left with a choice: Should we build it top-down—start from a growth rate and make margin and ratio assumptions—or bottom-up, with a detailed personnel roster and SKU-level costs? Picking one leaves you with a plan reflecting only half the business. Doing both in Excel is tough because the two models remain disconnected, and you’re left with a manual goal seek or Ctrl c and Ctrl v exercise to make sure everything syncs up. (And good luck with that.)
“We are better able to
Best practice: Combine high-level, top-down growth and marginbased models with a detailed bottom-up personnel roster,
manage expenses with
depreciation schedules, and SKU pricing in a single platform. Then
Adaptive Insights and
quickly and easily reconcile differences and identify gaps.
improve our margins. In the first year we saved $8 million, simply by fixing freight issues.” —Manager FP&A, Zagg
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BEST PRACTICES Your journey to more agile planning Modern cloud finance solutions like Adaptive Insights allow you to: Gather data in real time. Invest your time in picking the right planning process that eliminates the need for manual data gathering, making you efficient enough to be able to produce rolling forecasts Everybody plans! Get everyone in the organization involved in the planning process by giving them access to real-time data. And let business partners ‘own’ their numbers
Multiple scenario planning. Your driver-based models should be flexible enough to allow you to change multiple assumptions and immediately see the impacts across business, so you can respond accordingly
Best of both worlds. Combine high-level top-down growth and margin-based models with detailed bottom-up personnel rosters and schedules in a single platform so you can quickly reconcile differences and identify gaps
Ready to take action? We can help you and your team diagnose and treat your planning challenges. Learn more here.
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About Adaptive Insights Adaptive Insights, a Workday company, is powering a new generation of business planning. Driving business agility in a fast-moving world, the Adaptive Insights Business Planning Cloud leads the way for people in companies to collaborate, gain insights, and make smarter decisions faster. Powerful modeling for any size organization, yet so easy for everybody who plans. Adaptive Insights is headquartered in Palo Alto, CA.
To learn more, visit adaptiveinsights.com.
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